UK MORNING BRIEFING: Airlines Drag Down FTSE On Overcapacity Warning

LONDON (Alliance News) - UK shares have opened lower Tuesday after a weak return from a holiday weekend by Wall Street and ahead of some UK data.

Airlines IAG and easyJet lead FTSE 100 fallers - down 3.9% and 2.8%, respectively - after Air France-KLM warned about overcapacity on long-haul routes hitting yields, echoing a similar warning by Lufthansa last month.

Rio Tinto and Aberdeen Asset Management are among the top FTSE 100 gainers after HSBC raised Aberdeen to Overweight from Neutral, while Barclays raised Rio Tinto to Overweight from Equal Weight.

Marks and Spencer reported a hefty drop in online sales for the first quarter of its financial year, which the retailer blamed on the transition to its new website platform and a cutback of promotions both online and in store. Ahead of its annual general meeting later Tuesday, M&S reported an 8.1% fall in sales of its online business, M&S.com, for the 13 weeks to June 28.

Here is what you need to know at the UK market open:
----------
MARKETS
----------
FTSE 100: down 0.2% at 6,809.80
FTSE 250: down 0.7% at 15,787.79
AIM ALL-SHARE: down 0.5% at 784.32
----------
Hang Seng: down 0.2% at 23,489.20
Nikkei 225: closed down 0.4% at 15,314.41
DJIA: closed down 0.3% at 17,024.21
S&P 500: closed down 0.4% at 1,977.65
----------
GBP-USD: flat at USD1.7133
EUR-USD: down at USD1.3596

GOLD: up at USD1,318.61 per ounce
OIL (Brent): down at USD109.79 a barrel

(changes since end of previous GMT day)
----------
ECONOMICS AND GENERAL
----------
Tuesday's Key Economic Events still to come
(all times British Summer Time)

09:30 UK Industrial Production
12:30 US NFIB Business Optimism Index
13:55 US Redbook index
15:00 UK NIESR GDP Estimate
16:30 US 4-Week Bill Auction
18:00 US 3-Year Note Auction
18:45 US Fed Minneapolis's Narayana Kocherlakota speech
20:00 US Consumer Credit Change
----------
German trade contracted sharply in May, with exports falling more than forecast and imports posting their biggest slump in about 18 months, data showed. While monthly exports slumped by 1.1% in May, imports dived by 3.4%, the Federal Statistics Office reported, adding to signs that Europe's biggest economy slowed in recent months. Analysts had expected the data would show exports declining by 0.4% in May, after increasing by a hefty 2.6% in April. Imports had been predicted to post a modest 0.5% rise to build on the 0.2% gain in April. The May drop in imports was the biggest since November 2012, the statistics office said. Still, when compared with May last year, exports were 4.3% higher. Imports were, however, down 0.4% on the year.
----------
The UK economy is still strong and moving in the right direction, the Quarterly Economic Survey from the British Chambers of Commerce showed. In manufacturing, balances for domestic sales, profitability confidence and capacity utilization were at their all time highs in the second quarter. At the same time, there were no balances at their all-time highs in services. Meanwhile, exports and investment balances declined in the second quarter, for both manufacturing and services, survey based on responses from 7,000 businesses revealed. Despite these falls, the second quarter export balances and most investment balances are still above their average 2007 pre-recession levels.
----------
Japan posted a current account surplus of JPY522.8 billion in May, the Ministry of Finance said - remaining in the black for the fourth straight month. The headline figure topped forecasts for a surplus of JPY429.9 billion, and was up from JPY187.4 billion in April.
----------
Russian Foreign Minister Sergei Lavrov in a visit to Bulgaria called on the European Commission to again take up talks with Russia over the South Stream gas pipeline project. Russia is ready for "constructive dialogue," Lavrov said after talks with Bulgarian leaders in Sofia. Talks between Russia and the EU were halted over the crisis in Ukraine, while Bulgaria suspended work on its portion of Russia's new natural gas pipeline last month after the EU raised concerns about the way contracts were awarded. The 2,380-kilometre pipeline is planned to transport Russian natural gas to Italy, with branches to Greece and Austria, via the Black Sea and across the Balkans starting in 2015.
----------
Berlin stepped up pressure Monday on Washington over allegations that a German intelligence service employee spied for the US, with Chancellor Angela Merkel saying the case threatened to undermine trust between the two allies. "If the reports are correct, it would be a serious case," Merkel told a joint press conference with Chinese Premier Li Keqiang in Beijing. She said the incident "would represent for me a clear contradiction as to what I consider to be trusting cooperation between agencies and partners."
----------
Israel launched a major military offensive against the Gaza Strip early Tuesday, in response to increasing rocket attacks by Palestinian militants. The Israel Air Force bombed about 50 targets overnight, military spokesman Peter Lerner said. He warned that Israel would gradually increase the "quantity and quality" of its targets. It would expand the air offensive with a "ground mission if required," he said.
----------
Egyptian President Abdel Fattah al-Sissi defended a hike in fuel and electricity prices Monday, calling it an unpleasant but necessary step in decreasing the country's budget deficit. The government on Saturday raised the prices of petrol, diesel and natural gas used for cars from 40 to 77%, triggering an increase in transportation costs and shock among many citizens.
----------
A wildfire burning near northern California's Napa wine region has burned 2,626 hectares, fire authorities said Monday. The blaze, dubbed the Monticello fire, near Napa Valley State Park, about 100 kilometres north of San Francisco, was 35% contained. The fire has threatened no vineyards in the world-famous wine-making region.
----------
BROKER RATING CHANGES
---------
HSBC RAISES ABERDEEN ASSET TO 'OVERWEIGHT' ('NEUTRAL') - TARGET 525 (460) PENCE
----------
BARCLAYS RAISES RIO TINTO TO 'OVERWEIGHT' ('EQUAL W,') - PRICE TARGET 3600 (3350) PENCE
----------
SOCGEN CUTS COMPASS GROUP TO 'HOLD' ('BUY') - TARGET 1100 PENCE
----------
TRADERS: MACQUARIE RAISES BARCLAYS TO 'OUTPERFORM' ('NEUTRAL')
----------
PANMURE RAISES BOVIS HOMES PRICE TARGET TO 953 (942) PENCE - 'BUY'
----------
CS CUTS COUNTRYWIDE TO 'NEUTRAL' ('OUTPERFORM') - TARGET 582 (745) PENCE
----------
HSBC CUTS ASHMORE GROUP TO 'NEUTRAL' ('OVERWEIGHT') - TARGET 400 PENCE
----------
TRADERS: MORGAN STANLEY CUTS EVRAZ TO 'UNDERWEIGHT' ('EQUAL-WEIGHT')
----------
COMPANIES - FTSE 100
----------
British retailer Marks and Spencer Group PLC reported a hefty drop in online sales for the first quarter of its financial year, which the retailer blamed on the transition to its new website platform and a cutback of promotions both online and in store. Ahead of its annual general meeting later Tuesday, M&S reported an 8.1% fall in sales of its online business, M&S.com, for the 13 weeks to June 28. M&S said it expects online sales to return to growth ahead of its "peak trading period", which M&S said is November and December.
----------
COMPANIES - FTSE 250
----------
Housebuilder Bovis Homes Group PLC joined peers in reporting higher new house sales at higher average prices, confirming the continued strong recovery of the sector after several years in the doldrums in the wake of the financial crisis. In a trading update, Bovis said legal completions in the first half of 2014 were 1,487, up from 963 in the first half of 2013, at an average selling price of GBP210,000, up from GBP188.500. It said the rise in selling prices was down to it selling more expensive, larger properties, as well as "modest" improvements in house prices.
----------
UDG Healthcare PLC said it has acquired specialist healthcare and scientific public relations business MFRHRC Holdings Ltd for up to GBP13 million. UDG has acquired the company, which trades as Galliard and Nyxeon, for GBP6.5 million in cash, with a further GBP6.5 million payable based on profit targets over the next three years. The acquisition is expected to contribute to earnings immediately, UDG said.
----------
Dechra Pharmaceuticals PLC said it remains well placed for future growth Tuesday, as it saw revenue rise by around 1.6% at constant currencies in the year to end-June. In a trading update the veterinary drug company said it had seen growth in all markets across the European Union except for the Netherlands, driving its European Pharmaceuticals division revenue up 0.7% compared to the previous year. In the Netherlands, the competitive environment and concerns about the use of antimicrobial products in veterinary medicine continued to make the market challenging, Dechra said.
----------
Building products distributor SIG PLC said it is expecting to report a strong rise in pretax profit in the first half of the year, as strong sales growth in the UK and Ireland helped offset a hit on revenue earned elsewhere due to the strength of sterling. The company warned that sales growth moderated in the last two months of the half, but kept its guidance for "good progress" for the year as a whole despite currency movements going against it. In a trading update, SIG said it expects to report underlying pretax profit of at least GBP40 million for the first six months of 2014, up from GBP33.6 million last year excluding the sale of its former German roofing and Miller Pattison businesses, as sales from continuing operations rose by about 6.5% to about GBP1.29 billion.
----------
Housebuilding and construction company Galliford Try PLC said it has been appointed to three of the UK's education funding framework deals, which have a combined pipeline of work worth GBP3.25 billion. The framework deals involve mainly school refurbishment and rebuilding work.
----------
UK homeware retailer Dunelm Group PLC said it expects to report a higher pretax profit and revenue for the financial year just ended, boosted by particularly strong sales growth in the final quarter of the year, as the retailer continues to benefit from an improving UK economy. Dunelm said it expects to report a pretax profit of GBP116 million for the year ended June 28, driven by a "solid trading performance in the final quarter" and a 7.8% increase in sales for the year as a whole to GBP730.2 million. This compares with a pretax profit of GBP108.1 million a year earlier, and sales of GBP677.2 million.
----------
COMPANIES - MAIN MARKET AND AIM
----------
Electronics components company XP Power Ltd reiterated its guidance that it will grow revenue again in 2014, although it warned that the strengthening of sterling will hit its underlying growth. In the first half to end June the company saw revenue up 2% compared to the previous year. However, the appreciation of sterling against the US dollar, had a "significant" effect as the company primarily trades in dollars. On a constant currency basis revenue rose 9%.
----------
Sierra Rutile Ltd said its production rates underperformed in its first half after tailings provided disappointing levels of rutile, but its cost efficiency plan continued to move forward, reducing operating cash costs significantly during the period. The titanium feedstock minerals company, with operations in Sierra Leone, said its rutile production increased 3% to 27,842 tonnes in the three months ended June 30 from 26,898 tonnes the previous year. It said that this number led to a modest underperformance against its planned rutile volumes in the first half.
----------
Amara Mining PLC said further results from its 2014 drilling programme at the Yaoure gold project in Ivory Coast confirmed continuity of the deposit in the project's central zone and continued to confirm the high-grade nature and continuity of its CMA zone. The West Africa-focused gold mining company said drilling into the 'information gaps' between previous drilling sites highlight the potential to expand its 6.3 million ounce resource base at the site, with a significant portion of waste expected to be converted into mineralised material.
----------
Young & Co's Brewery Q1 Managed Pubs Sales Up 8.3%, Like-for-Like Up 7.3%; Continues To Actively Pursue Acquisition Opportunities

----------
COMPANIES - OTHER
----------
Franco-Dutch airline Air France-KLM reported a 2.9% improvement in traffic, with a 1.8% increase in capacity for the month of June 2014, but its lowered its earnings before interest, tax, depreciation and amortisation target for the year as a whole as it warned that overcapacity on some long-haul routes will hit yields.
----------
Tuesday's Scheduled AGMs/EGMs

Marks and Spencer Group
Establishment Investment Trust
Young & Co's Brewery
3i Infrastructure
----------
By Tom Waite; thomaslwaite@alliancenews.com; @thomaslwaite

Copyright 2014 Alliance News Limited. All Rights Reserved.